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CIRCULAR No. 40a-TC/NSNN OF JUNE 30, 1997 GUIDING THE ELABORATION OF THE 1998 STATE BUDGET DRAFT

In furtherance of Directive No. 416-TTg of June 14, 1997 of the Prime Minister on the elaboration of the socio-economic development plan and the 1998 State budget draft, the Ministry of Finance hereby provides the following guidance for evaluating the 1997 State budget execution and elaborating the 1998 State budget draft:

A. Organization and evaluation of the 1997 State budget execution:

In implementation of the socio-economic development plan for the first six months of 1997, the socio-economic growth rate was maintained; good results were obtained in industrial and agricultural production, goods circulation and export activities, inflation was curbed, many positive changes were seen in various aspects of the social life. Since early this year many ministries and localities have actively performed their budget revenue and expenditure tasks assigned by the Government, expeditiously implemented the Law on the State Budget and the guiding documents thereof. Revenues from a number of fields were relatively good (revenues from foreign invested enterprises, income taxes, traffic fees...); Expenditure administration and control were better. Yet, there have appeared constraints and problems: slow production and consumption of a number of essential goods, ineffective control of smuggling and tax evasion which has resulted in low budget revenues in some fields compared with the targets approved by the National Assembly (revenues from the non-State sector, agricultural land use tax, import and export taxes; the delay in the allocation of capital to and the execution of capital construction works and national programs which has led to low budget expenditures in these domains), and a prevailing situation of inefficient and wasteful spendings.

The ministries and localities shall base themselves on the socio-economic development objectives, the draft State budget revenues and expenditures assigned to them, and their performances in the first six months to work out direction and execution measures to be taken in the last six months of 1997 with a view to accomplishing the 1997 State budget revenue and expenditure tasks already approved by the National Assembly. They shall simultaneously evaluate the execution of the entire 1997 State budget under their management, which shall serve as the basis for elaborating the 1998 State budget draft. Specifically:

I. With regard to revenues

1. For the State enterprises:

- To thoroughly understand the situation of production and business of enterprises.

- To categorize enterprises for specific concrete policies: Enterprises which effectively operate and need to be maintained and developed and measures should be sought to support their development; enterprises which need to be rearranged and equitized; and enterprises which must be dissolved or declared bankrupt.

- To regularly urge the payment and collection of budget revenues, to intensify the inspection of the enterprises� accounting and balance of final accounts so as to exclude all irrational costs from the product prices and circulation fees and increase accumulation for paying budget revenues. To closely supervise the increasing of basic depreciation deductions to ensure compliance with the set regulations. The advance deductions and reserve fund should be closely monitored, if there is actually no need to make advance deductions or contributions to the reserve fund, it is necessary to reduce expenses proportionally so as to re-determine taxable profits and profit tax to be paid to the State budget.

- To strictly observe the tax management procedures (declaration, notice of collection, inspection), to fully collect any arising taxes and resolutely not to allow any newly arising tax arrears.

- To issue orders to collect and impose fines on evaded taxes and due debts which units deliberately delays in remitting them to the budget.

2. For the foreign invested enterprises:

- To list all investment projects in each territorial area and categorize them into: those which are being constructed, those which have been put into operation, and those with their tax grace periods having expired, the land area and land use duration of each project so as to fully calculate and collect taxes and land, water surface and sea surface rents as prescribed. To make a dossier for managing each project�s tax payment, to thoroughly grasp all data related to the tax payment and financial situation of each project.

- To concentrate on checking the tax settlement, ensuring that 100% of enterprises already put into operation have their taxes settled. To pay attention to checking the costs of imported supplies and materials, duty-free imported supplies and equipment, to impose fines and collect taxes if they are not used for the set purposes.

3. For the non-State economic sector:

- To sum up the implementation of business re-registration under Directive No. 657-TTg of September 13, 1996 of the Government. To combine the business registration with the management of tax payment; to gradually put the management of non-State industrial production, trading and service units into order; to put an end to the situation of doing business without registration or with improper registration, doing businesses without tax payment or with improper tax payment; to closely supervise the households which have applied for giving up their business activities; to make and post a list of households engaged in business activities at the office of the ward/commune People�s Committee and the tax office so that the people can help detect those subject to taxes.

- To closely follow the fluctuation of the market prices, the actual business situation of each tax payer and each commodity line for each period of time and season; to conduct sample surveys and re-calculate precisely the turnover and turnover tax rates so as to prevent losses in turnover tax revenues. For business households that pay tax according to the declaration method: it is necessary to closely supervise their observance of the regime on accounting records and making of vouchers for sale and purchase of goods, the signing of economic contracts; to discover and handle in time cases of false declaration of business activities such as deliberately failing to declare turnover, declaring expenses higher than actual ones, loss or illegal sale of invoices or receipts, disparities among copies of invoices, receipts , vouchers. To expand the application of accounting system to large business households and companies. For business households that pay tax according to the tax assignment method: turnover must be determined according to the procedure prescribed in Official Dispatch No. 240-TCT/NV6 of February 21, 1995 of the General Department of Taxation; to conduct sample surveys of commodity items and business lines or geographical areas so as to project taxable turnover precisely; to consult the ward and commune People�s Committees and tax counseling councils to ensure a fair and objective determination of turnover and turnover tax rates whilst making public the tax rates applied to tax payers in each area at the office of the commune/ward People�s Committee.

- To get to know thoroughly the production and business situation of non-State enterprises so as to precisely, fully and promptly collect the prescribed revenues.

4. For import and export taxes:

- To collect all tax arrears according to Directive No. 575-TTg of August 24, 1996 of the Prime Minister. To intensify the measures to fight against tax evasion, especially tax on imported consumer goods. To enhance the management of and to fight against the evasion of tax on goods of foreign invested enterprises, gifts, presents, processed products and goods temporarily imported for re-export as well as cases of tax refunding.

- To supervise the collection of import and export taxes at the border gates where taxes are paid in large amounts.

5. For revenues related to land and residential houses:

- With regard to the fee on the assignment of land-use right and the tax on the transfer of land use right: To immediately collect all land related revenues which have not yet been paid or misappropriated according to inspection and supervision results. The People�s Committees of various levels shall direct the tax office in coordinating with the land administration agencies and concerned agencies to ensure timely collection of revenues for cases where land use or land lease permits are granted, cases of land-use right registration and application for land use right certificates, application for construction permits, certification of altered purposes or assignment of land use right so as to manage collections according to the prescribed regime.

- For the agricultural land use tax: To fully collect tax on the land areas which are due to 1997 tax payment, particularly those areas under perennial plants in the eastern South and the Central Highlands; the paddy price for tax calculation must be close to the market price.

- For residential land tax: To quickly complete the residential land tax bracket, to fully collect tax on this type of land.

- To make recommendations to the competent agencies to simplify the procedures for and properly adjust the selling price in order to promote the sale of houses under the State ownership.

6. For fees and charges:

- Fees and charges at the ward/commune level: To thoroughly know the collected fees and charges at the ward/commune level, to request the full payment or inclusion of such fees and charges into the State budget.

- Fees and charges collected by units and branches: By supervising the use of receipt vouchers to thoroughly know the collected fees and charges, to request the full and timely payment or inclusion thereof into the State budget.

- Traffic fees: shall be collected according to Circular 29-TC/TCT of June 9, 1997 of the Ministry of Finance adjusting and supplementing Circular No. 117-TC/TCT of December 24, 1994 of the Ministry of Finance on the collection of traffic fees which are included in the petrol price. To check the petrol volumes put into warehouses and already sold out and to inventorize the volumes of petrol and diesel still left at warehouses of companies and their affiliates which are subject to the payment of traffic fees, to urge them to promptly pay traffic fees to the State budget.

II. With regard to expenditures:

On the basis of the assigned annual budget drafts and the progress in performance of the tasks, budget expenditures must be made according to the prescribed regime and only for the assigned tasks in an economical manner and with priority given to the important tasks. The evaluation of expenditures must be based on the results of the performance of the assigned tasks, analysis shall be made in those fields with wasteful spendings to find out causes and remedy solutions for the last six months, which shall serve as the basis for elaborating the 1998 State budget draft.

1. From now till the end of the year, additional budget expenditures outside the budget draft shall not be approved, except in really urgent cases such as control and overcoming of natural calamities, including floods. The ministries, localities and units must practice thrift, rearrange the spending tasks so as to meet newly arising urgent spending needs, immediately cut down unnecessary expenses on meetings and receptions. For spending needs which have been already decided but not yet included in the budget draft approved at the beginning of the year, they should be re-examined so as to reschedule the spendings and put them in the 1998 budget draft. For the provinces and cities directly under the Central Government which are able of collecting their local budget revenues more than the 1997 budget drafts, such excess revenues should be used as additional allocations for education, training and scientific development in an effort to immediately realize the Resolution of the second plenum of the Party�s Central Committee in 1997; the rest shall be added to the fund for the construction of socio-economic infrastructure works, but not to the administrative expenditures. For the provinces and cities directly under the Central Government which may not achieve the local budget revenues set in 1997 budget drafts, they should take initiative in rearranging expenditure items to suit the revenue source of the local budgets while still ensuring funds for the localities� significant socio-economic development tasks, including education, training and scientific development.

2. For capital construction expenditures: The ministries, branches and localities shall concentrate on directing the fulfillment of their assigned budget drafts for capital construction investment, which shall serve as the basis for making budget allocations according to the volume of work done and the payment procedures. For the construction projects which are expected to be funded by the 1997 budget draft, if until July 30, 1997 they have not yet completed the capital construction investment procedures under Decree No. 42-CP of the Government they shall be removed from the 1997 capital construction investment plan and considered for inclusion in the 1998 plan. On the basis of the volume of work done in the first six months and the projected volume to be fulfilled in the whole year as well as the allocated expenditures and the possible allocations for the last six months so as to determine the construction volume of each project that must be shifted into the 1998 budget draft.

3. For construction investment expenditures for socio-economic infrastructure works, social welfare facilities, for development of the housing fund, investment in agricultural and rural development, as well as expenditures for reforestation from the local budget revenues comprised of levy on the land-use right transfer, land rents and proceeds from the sale of residential houses, revenues from public lotteries, levy on the use of agricultural land for rice cultivation and royalty on forest natural resources; the localities shall rely on the amount of revenues to make expenditures in consistence with the set objectives. If revenues fail to reach the planned targets, expenditures shall be curtailed proportionally, expenditures shall be made only upon the availability of revenues so as to avoid unpayable debts.

4. For the national programs: Funding shall be allocated to the national programs according to their estimated budgets and implementation plans. The agency that manages national programs shall review and evaluate the impact of each program in terms of its objectives, implementation timetable, results achieved by the end of 1997, thereby making specific recommendations on the management mechanism and rearrangement of programs.

5. For current expenditures: On the basis of the budget drafts assigned from the beginning of the year, the progress in the performance of the tasks and the budget abilities to estimate current expenditures for the whole year in close accord with the actual situation of each ministry or locality. Each field of current expenditures should be analyzed according to various expenditure items in the list of the State budget; to analyze the expenditures for wages, wage allowances, compulsory expenses extracted from wages, current operational expenditures as well as non-current expenditures such as purchase and repair, poverty relief, overcoming of natural calamities, floods..., which shall serve as the basis for elaborating the 1998 budget draft.

III. Evaluation of the implementation of the State Budget Law and its guiding documents:

The ministries, central agencies, local administration of various levels and units shall evaluate their implementation of the Law on the State Budget and its guiding documents in the first months of 1997 in the following aspects: delegation of the budget management, allocation of the budget drafts, observance of the budget drafts, budget accounting, management of commune/ward budgets, observance of the regulations and policies on budget revenues and expenditures, thereby making recommendations to the competent levels to amend and supplement the documents guiding the implementation of the Law and other concrete regulations and policies related to the management and execution of the State budget.

B. Elaboration of the 1998 State budget draft

The elaboration of the State budget draft must fully comply with the provisions in Decree No. 87-CP of December 19, 1996, Circular No. 09-TC/NSNN of March 18, 1997 and Circular No. 14-TC/NSNN of March 28, 1997. On the basis of the requirements set forth in Directive No. 416-TTg of June 14, 1997 of the Prime Minister and the actual situation, the Ministry of Finance provides guidance on the following issues:

I. Requirements and objectives:

The year 1998 is the third year executing the 1996-2000 five-year plan, the second year implementing the State Budget Law. The situation of 1997 and the recent years has shown that:

- The economic growth rate has been maintained but some branches have experienced stagnation and difficulties in marketing their products.

- Inflation has been curbed and tends to be on the decline.

- The demand for development investment expenditures, current expenditures for education, healthcare, culture, social affairs, defense and security has been growing day by day.

In light of the above-mentioned situation, the elaboration of the 1998 State budget draft must meet the following requirements and objectives:

1. Requirements:

- To continue enhancing the national financial potential, consolidate the national finance and create a further improvement in the materialization of the policy of restructuring the State budget.

- The draft of State budget revenues must be made in accordance with law, in such a way that they cover and calculate all sources of revenues, effectively fight against failures in collecting revenues, ensure equality among enterprises in their production and business activities; and at the same time encourage the development of business and production activities, generate more revenues for the present as well as long time. To increase the percentage of budget expenditures for development investment, education and training, science, technology and environmental protection as compared to 1997; to properly execute the policy that the State and the whole society join efforts in developing education, training, culture and social welfare. The increasing rate of current expenditures must be lower than that of development investment expenditures. The 1998 State budget draft must be elaborated in detail down to the level of each budget-using unit and including all items in the List of the State Budget.

- The elaboration of the State budget draft must comply with the provisions of the Law on the State Budget, Decree No. 87-CP of December 1996 of the Government, Circular No. 09-TC/NSNN of may 18, 1997 and Circular No. 14-TC/NSNN of March 28, 1997 of the Ministry of Finance regarding: bases, general requirements and forms for elaborating the budget draft, notice of the budget draft�s examination serial number; discussions on the draft budget; time limit for submitting reports on the draft budget; tasks, powers and procedures for elaborating, summing up and deciding the budget draft.

- To stabilize the percentages for distributing revenues among the various budget levels and additional allocations from the higher-level budget to the lower-level budget as in 1997. Only the additional allocations from the higher-level budget to the lower-level one shall be increased by 6% compared with those in 1997.

2. Objectives:

- To maintain a GDP growth rate of 9.0% - 9.2% on the basis of stepping up production, .

- To strive for a total State budget revenue of approximately 21% of GDP, of this figure revenues from taxes and charges account for about 20% of GDP; to take initiative in adjusting the structure of budget revenues suitable to the actual situation of socio-economic development. When imposing import and export duties the fact that Vietnam is in the process of joining AFTA and the country�s likely participation in the international economic and financial institutions should be taken into account; to build stable and strong domestic sources of revenues. On the basis of developing and raising the efficacy of business and production activities, to efficiently use and exploit financial sources, sources of revenues from natural resources, public assets and to intensify the fight against failures in collecting revenues.

- To earmark about 30% of collected taxes and charges of the State budget for development investment expenditures and debt repayment, with priority given to capital construction investment in key State projects, education, training and scientific projects; 70% of collected taxes and charges for current expenditures; to ensure the rational and economical use of current expenditures with priority given to education and training, scientific research, application of modern technology, environmental protection, healthcare, defense and security and the settlement of urgent social issues. In furtherance of the Resolution of the second plenum of the Party�s Central Committee and the draft of 1998 budget expenditures (including current expenditures and investment expenditures), expenditures must be concentrated on education and training, science, technology and environmental protection so that by the year 2000, the expenditure on education and training shall reach 15% and the expenditure on science, technologies and environmental protection shall reach 2% of the total budget expenditures. Allocations for spending on education, training, healthcare and culture must be calculated on the basis of the continued reorganization and rearrangement of every unit or branch according to its functions and tasks and must take into account the execution of the policy of socializing sources of expenditures for these fields; to gradually reduce and then cut all training, healthcare... subsidies for the State enterprise sector, to create conditions for enterprises to have true financial autonomy. To allocate managerial and administrative expenditures in a reasonable and thrifty manner and restrict expenditures on purchase and repair in State management agencies.

II. Some economic growth forecasts for 1998 as against 1997:

- The gross domestic products (GDP) up by 9% - 9.2%;

- The total value of agricultural, forestry and fishery production up by 4.7% - 4.8%;

- The value of industrial production and construction up by 14% - 14.5%;

- The value of services up by 11% - 12%;

- The total export value up by 28% - 30%;

- The total import value up by 18% - 20%;

- The consumer goods and service price index of approximately 7% - 8%;

- The development investment for the entire society up by 26% - 28%.

III. Principal contents of the 1998 budget revenue and expenditure draft which should be paid

attention to:

1. With regard to revenues:

1.1. For the State economic sector:

a/ Regarding turnover tax: This tax shall be calculated according to Circular No. 97-TC/TCT of December 30, 1995 of the Ministry of Finance detailing the implementation of the Law on Turnover Tax and the Law Amending and Supplementing a Number of Articles of the Law on Turnover Tax. To fully calculate turnover of every enterprise with attention paid to turnover from other activities such as financial activities, sale of supplies and goods, liquidation of assets. In cases where an enterprise sells goods together with sale promotion lotteries, the taxable turnover shall be calculated according to the guidance in Point 7 of Official Dispatch No. 3006-TC/TCT of August 28, 1996 of the Ministry of Finance. To estimate the concrete amount of turnover tax reduction and exemption for business establishments in mountain areas according to Circular No. 24-TC/TCT of May 10, 1996 of the Ministry of Finance (tax reductions and exemptions in 1998 shall be concretely decided by the Ministry of Finance)

b/ Regarding special consumption tax: This tax shall be calculated according to Circular No. 98-TC/TCT of December 30, 1995 of the Ministry of Finance detailing the implementation of the Law on Special Consumption Tax and the Law Amending and Supplementing a Number of Articles of the Law on Special Consumption Tax.

c/ Regarding mineral tax: The basis for calculating the mineral tax is the exploitation output, the tax calculation price(s) and the tax rate(s). The tax calculation price is, in principle, the selling price of a mineral product unit at the exploitation or production place.

d/ Regarding profit tax: On the basis of determining various expenditure factors of an enterprises in 1997 and predicting factors of increase and decrease in 1998, to calculate the profit tax. Specifically:

- Fixed asset depreciation costs: On the basis of the original price(s) of the fixed assets in 1997 to calculate the increased or reduced amount of such original price(s) in 1998 for determining the fixed asset depreciation level according to Decision No. 1062-TC/QD/CSTC of November 14, 1996 of the Ministry of Finance issuing the regulations on the use and depreciation of fixed assets. In the process of calculation, attention should be paid to cases where the depreciation duration is shortened, the deducted amount of basic depreciation must ensure that the profit tax shall not be lower that that of 1997, those fixed assets which have been fully depreciated but still in use shall not be accounted in the product cost.

- Costs of major fixed asset repairs: shall be calculated according to valid and rational spendings. For assets with peculiarities, major repair costs shall be calculated and deducted in advance on the basis of the enterprise�s expenditure draft already approved in writing by the Ministry of Finance. Those expenditures related to capital construction investment shall not be included in the major repair costs of fixed assets.

- Costs of raw materials, fuel and materials: On the basis of the actual expenditures in 1997, the raw material, fuel and material quotas and the output increase , to calculate the costs of raw materials, fuel and materials in 1998.

- Salaries: The salary price unit shall comply with the provisions of Decree No. 28-CP of March, 1997 with attention paid to the following points:

+ When the coefficient of salary increase is applied, the principle that budget revenues, especially the generated profit, shall not decrease compared to those of 1997 must be ensured.

- Other expenses such as those for reception, meetings, public relations, external relation activities... which are directly related to the business process must be calculated according to the spending limit and management regulations set by the State.

e/ Levy on the use of the State budget capital, including assets and capital contributed to joint ventures (comprised of assets, supplies as part of the State budget capital, the commercial value of the land of which the right to use is contributed to a joint venture), shall be calculated according to Circular No. 33-TC/TCT of June 13, 1997 of the Ministry of Finance.

1.2. For the non-State industrial and trade sectors: To make a list of all businesses operating in each area in the spirit of Directive No. 657-TTg of the Prime Minister. It is necessary to assess losses in tax collections as well the number of businesses in 1997 so as to determine accurately them in 1998 in an effort to gradually reduce the percentage of losses in tax collections. Specifically:

a/ For stock companies, limited liability companies, private companies, cooperatives and production groups: Revenues to be collected from each enterprise, especially large enterprises, shall be concretely calculated. For non-State enterprises established under the Law on Companies, the Law on Private Enterprises, the transfer of capital by investors must be subject to profit tax under the guidance in Circular No. 96-TC/TCT of December 30, 1995 of the Ministry of Finance.

b/ For business households subject to fixed tax amount: To list all small business households subject to excise tax, to collect such tax from those households which have not yet paid any tax. On the basis of the number of business households subject to excise tax and the rates of this tax, to prepare for levying turnover tax and profit tax on households having a fixed business place.

1.3. For registration fees: Attention should be paid to the full calculation of registration fees on those assets which have been registered for their ownership but contributed as capital to joint ventures under the guidance in Circular No. 93-TC/TCT of December 21, 1995 of the Ministry of Finance supplementing Circular No. 19-TC/TCT of March 16, 1995.

1.4. For tax on the use of agricultural land:

- It is necessary to clearly calculate the tax on the use of agricultural land for rice cultivation as a basis for allocating expenditures for investment in agricultural and rural development.

- The land under perennial plants with the duration of tax reduction and exemption being expired shall be subject to this tax.

- For the tax calculation price: it is necessary to calculate the paddy price close to the market price, ensuring that it is not 10% lower than the local market price.

1.5. For residential land and housing tax: Attention should be paid to those enterprises which are shifting from paying land tax to paying land rent.

1.6. For levy on the assignment of the land use right:

- On the basis of the local planning on land use, to estimate the new area of land to be assigned for calculating the levy on the assignment of the right to use such land area.

- Those localities that have over the past years collected revenues from the assignment of the land use right but not yet included them into the State budget must clearly calculate and put these revenues in the 1998 State budget draft so that allocations to local budgets can be appropriately arranged..

1.7. For tax on the transfer of the land use right and collection of land rents:

- To calculate the tax on the transfer of the land use right according to Circular No. 78-TC/TCT of September 30, 1994 of the Ministry of Finance. To calculate the land rents according to the document guiding Decree No. 85-CP of December 17, 1996 of the Ministry of Finance; to calculate the land rent prices according to the provisions in Article 2 and Article 6 of the Regulation on the land rent price bracket issued together with Decision No. 1357-TC/QD/TCT of December 30, 1995 of the Ministry of Finance.

1.8. For levy from the sale of residential houses:

- To calculate this levy according to Decree No. 61-CP of July 5, 1994 of the Government on the sale of and trading in residential houses and Decree No. 21-CP of April 16, 1996 amending and supplementing Decree No. 61-CP

- Those localities that have in the past years had revenues from the sale of residential houses but not yet remitted them into the State budget must account them into 1998 revenues.

1.9. For personal income tax: To calculate this tax according to the Ordinance amending and supplementing a number of articles of the Ordinance on income tax on high-income earners. Particularly it is necessary to list all those people subject to income tax working at joint ventures, representative offices, winners of public lottery prizes...

1.10 For revenues from public lotteries: On the basis of evaluating the situation of collection in 1997, to clearly analyze the subjective and objective causes, including measures taken by the State to fight against lottery bets, and on the basis of the lottery distribution network, the possible sales of lotteries to adjust the lottery price structure and reduce the distribution costs for calculating the revenues in 1998.

1.11. For non-business revenues of non-business units which have not yet shifted to operate under the financial regime of public utility enterprises, previously part or all of these revenues were left for the units to serve their collection management work and regular tasks; under the State Budget Law, these revenues must be indicated in the State budget, therefore non-business units having revenues are now requested to account them into their revenue and expenditure draft. Whether a unit is allowed to keep these revenues to cover its spendings (then applying the practice of mutual ceasing of budgetary resources) or it must pay all of them to the State budget and shall receive sufficient budget allocations according to its budget draft must be approved by the competent level. For those units which are allowed to keep part or all of their revenues to cover their spendings, their revenue and expenditure drafts must be also approved by the competent level.

1.12. For fees and charges: Revenues from each type of fee or charge managed by the Central Government, every province, city, rural or urban district, rural or urban commune shall be concretely calculated. In order to ensure that all sources of revenues must be indicated in the State budget as prescribed in the State Budget law, it is requested that those units which were previously allowed to deduct a certain percentage of the collected fees and charges for the fee and charge collection management work must also fully sum up the deducted amount for inclusion into their revenue and expenditure drafts. Whether a unit is allowed to retain such revenues for its spendings (then practice credit-debit recording) or to pay all of them to the State budget and shall receive sufficient allocations according to its budget draft must be approved by the competent level. For units which are allowed to retain part or all of their revenues for their spendings, their revenue and expenditure drafts must also be approved by the competent level.

1.13. For the traffic fee collected as part of the petrol and gasoline price: To calculate this fee according to the provisions in Circular No. 29-TC/TCT of June 9, 1997 of the Ministry of Finance. Attention should be paid to those localities where there are big importers of petrol and gasoline.

1.14. For revenues outside the budget: It is necessary to clearly determine and report those revenues collected according to the Government�s stipulations which are used for specific purposes, such as fines on violations of traffic order and safety, fines on smuggling and confiscated smuggled goods...

1.15. Those units which have borrowed loans from the 1998 budget (directly from the budget, loans which were borrowed and relent by the budget for projects and programs) and such loans are due, must make a plan on repaying both principals and interests of such loans to the 1998 budget according to the prescribed repayment schedule.

2. With regard to expenditures:

2.1. For capital construction expenditures:

- The concentration of expenditures for capital construction investment must ensure this principle: priority is given to allocating capital to key State projects, socio-economic infrastructure construction projects in mountainous areas, the Central Highlands and the Mekong River delta, investment projects in the fields of education, training and science. To allocate adequate capital to unfinished projects. To put an end to the scattered allocation of capital, especially to Group C projects. To earmark capital for payment to the capital construction projects already completed in 1997 but not yet settled with any source. To allocate adequate reciprocal capital for projects and programs using foreign loans and aid; to ensure the principle that those projects and programs funded by the State budget and in need of reciprocal capital shall be considered for their required reciprocal capital being included in the budget draft; for projects and programs which use relent loans, their managers themselves must seek sources of capital suitable to the contents of the signed agreement and the financial regulations of Vietnam so as not to affect the implementation schedule.

- To use the share of after-tax profits from the Vietsovpetro oil and gas joint venture for investment in the oil and gas industry as stipulated by the Prime Minister for 1998.

- To continue allocating local budgets for investment in the construction of socio-economic infrastructure projects, social welfare facilities, development of the housing fund, investment in agricultural and rural development, reforestation, using following sources: revenues from the assignment of the land use right, land rents, revenues from public lotteries, revenues from the sale of residential houses, tax on the use of agricultural land for rice cultivation, tax on forest resources like in 1997.

- To continue using the tax on water resources of the Hoa Binh hydroelectric power plant to fund the implementation of the Da river reservoir project; to reinvest in the economic zone of Mong Cai, to reinvest in the district island of Con Dao and to fund IFAX projects like in 1997.

2.2. For additional capital for State enterprises: In 1998, the State budget shall allocate additional capital to important and essential State enterprises which have seen development of their production and business, have fully paid taxes to the State budget, made profits but lack capital, enterprises which manufacture export products and enterprises which perform tasks under the decision of the Prime Minister.

2.3. For State reserve expenditures: On the basis of their assigned State reserve tasks, the branches and units shall have to re-evaluate and re-determine their existing reserves by December 31, 1997. On that basis, to estimate the additional reserve for each category of goods, supplies and equipment as prescribed, which shall serve as basis for elaborating the draft State reserve expenditures of the branches and units in 1998.

2.4. For price subsidies of the commodities supplied for the implementation of social policies:

- Price subsidies of the commodities transported to mountainous areas to serve ethnic minority people shall be calculated according to Official Dispatch No. 7464-KTTH of December 12, 1995 of the Government, the guiding documents of the concerned ministries and branches regarding the objects, commodities, transportation distance and the level of subsidies.

- Price subsidies of original breeds, press, publications.... shall comply with current regulations. The ministries and localities should carefully calculate and clearly determine the quantities, production costs, transportation costs..., and the concrete level of freight subsidies for each commodity, breed, newspaper or publisher under current regulations.

2.5. For non-business and administrative expenditures:

It is required that the draft expenditures be calculated according to the regulation on budget spending and current socio-economic norms issued by the competent level. All requests for additional spendings and adjustment of socio-economic norms must be settled as prescribed and before the 1998 draft State budget is decided. All spending needs which arise after the budget drafts of the ministries and branches are approved must be met within the limit of their assigned budgets. The draft for the non-business and administrative expenditures must be elaborated according to the tasks of each unit or locality; at the same time the grassroots network must be rearranged, the execution of the socialization policy must be strengthened in these fields, various funding sources must be clearly calculated for every field, including: State budget allocations, including loans to projects and programs, such revenues as school fees, hospital fees, aid, contributions of organizations and individuals...

- To allocate funding for education and training activities on the basis of the continued rational rearrangement of the network of schools and classes, taking into account the realization of the socialization policy in this field, increasing the spending ratio of each budget level for education and training as compared to 1997 so as to realize step by step the Resolution of the second plenum of the Party�s Central Committee.

- To allocate funding for science, technology and environmental protection with priority given to basic research, to allocate adequate funding for implementing State-level scientific and technological programs, to increase the spending ratio for this field so as to implement step by step the Resolution of the second plenum of the Party�s Central Committee. In order to concentrate sources of capital for significant research projects, it is necessary to rearrange research institutes in the business sector; the 1998 budget draft must be elaborated according to Decision No. 782-TTg of October 24, 1996 of the Prime Minister.

For provinces and cities, allocations from the local budgets for education, training, science, technology and environmental protection must not be lower than the examination figure notified by the Ministry of Finance.

- Funding allocated by the ministries, localities and units for healthcare, culture and information, radio and television broadcasting, sport and physical training activities must be in line with the tasks and programs, ensuring the effectiveness of these activities, priority shall be given to allocations for the important tasks, the tasks already decided by the Prime Minister, the tasks not yet fulfilled in 1997 and other prescribed spending tasks.

- Administrative expenditures must ensure full payment of salaries and various salary deductions on the basis of the approved official payroll. Current operational expenditures must be allocated in an economical manner and at a necessary level. Other expenditures for purchase, repair, reception of foreign delegations and overseas trips shall be allocated according to the ability of the budget balance; to minimize the purchase of expensive furniture which are not urgently needed; to reduce the number of meetings...

- The level of administrative and non-business expenditures in the 1998 budget draft shall be temporarily the same as those prescribed in Circular No. 38-TC/NSNN of July 18, 1996 of the Ministry of Finance.

2.6. With regard to the national programs: On the basis of the evaluation of the efficiency of each program by the end of 1997, to look into the contents, the implementation schedule and results of each project (including both tasks and funding). On the basis of the decision of the Prime Minister on the rearrangement of the national programs to prepare the expenditure draft for the implementation of the national programs in 1998.

IV. Organization of implementation:

- 1998 is the second year to implement the Law on the State Budget, the percentages for distributing sources of revenues among the budget levels and additional allocations from the higher-level budget to the lower-level budget shall be the same as those of 1997. Therefore, the People�s Committees of various levels are required to guide, notify the examination figures, organize discussions and sum up the 1998 State budget draft in accordance with the provisions of the Law on the State Budget and the documents guiding the implementation thereof, Directive No. 416-TTg of June 14, 1997 of the Prime Minister and the guidance in this Circular so as to ensure both quality and timing requirements.

After assisting the provincial/municipal People�s Committee in guiding and notifying the provincial-level units and lower-level administrations of the examination figures on budget revenues and expenditures, the provincial/municipal Financial and Pricing Service is required to coordinate with the provincial/municipal Tax Department and concerned agencies on the basis of the examination figure notified by the Ministry of Finance, the concrete situation and tasks of the local socio-economic development in 1998 in elaborating the local preliminary draft of budget expenditures and revenues for 1998, submit it to the provincial/municipal People�s Committee for opinion. This draft, with the opinion of the provincial/municipal People�s Committee, shall be the basis for the provincial/municipal Finance and Pricing Service to hold the first- round discussions with the Ministry of Finance, the lower-level administrations and provincial-level agencies.

- Every ministry or central agency shall provide guidance, notify the examination figures, organize discussions, elaborate the 1998 draft budget and send it to the Ministry of Finance according to the schedule and forms (attached with explanations) prescribed in Circular No. 09-TC/NSNN of March 18, 1997 and Circular No. 14-TC/NSNN of March 28, 1997 of the Ministry of Finance.

After assisting the ministry or central agency in guiding and notifying its attached units of the examination figures on budget revenues and expenditures, the Financial Department (or the Department which has similar functions) of the ministry or central agency shall rely on the examination figures already notified by the Ministry of Finance, the concrete tasks and activities of the ministry in 1998 to elaborate the ministry�s preliminary draft of budget revenues and expenditures for 1998 and submit it to the ministry�s leading officials for opinion, which shall serve as the basis for it to hold the first-round discussions with the Ministry of Finance and with its attached units.

- The General Department of Taxation, the General Department of Development Investment, the General Department of Management of the State capital and Assets at Enterprises shall be responsible for providing concrete guidances on this Circular for their attached units and organizing the elaboration and reporting of the 1998 draft budget revenues and expenditures for the fields assigned to them.

- The Ministry of Finance shall work and discuss the 1998 draft budget revenues and expenditures with the ministries, central agencies, provinces and cities directly under the Central Government and the large Corporations as follows:

First round: From July 25 to August 10, 1997, working, discussing and making comments on the 1998 draft budget revenues and expenditures of the ministries and localities on the basis of the preliminary drafts mentioned above.

Second round: From August 25 to September 10, 1997 working on the draft budget revenues and expenditures, determining and agreeing on the level of budget allocations to the ministries, central agencies, provinces and cities (after the ministries and central agencies have summed up the budget drafts of their attached units; the provinces and cities directly under the Central Government have summed up the budget drafts of their communes, districts and attached units in accordance with the provisions of the Law on the State Budget).

The Ministry of Finance shall notify the specific working timetable later.

For the Minister of Finance

Vice Minister

PHAM VAN TRONG